Earlier this month, the Centers for Medicare & Medicaid Services (CMS) released a final rule outlining changes to the Medicare Shared Savings Program (MSSP) that had been preliminarily proposed earlier this year. Oliver Wyman’s Tomas Mikuckis explains why Accountable Care Organizations (ACOs) may be finding their decision calculus richer in options but increasingly complex:

As we had outlined in our earlier review, continued changes to the MSSP program would be critical to maintain the viability of the program, and based on the early guidance, it appeared that many of the changes were moving in the right direction. So how did things turn out?

The final rule reflects the balance between encouraging participation and encouraging improvement. Participation is encouraged by increasing the number of options in the MSSP program and by extending Track 1. An aggressive push to greater risk could have caused more ACOs to consider leaving the program: Based on first-year MSSP performance data, only a quarter of ACOs were receiving shared savings payments. At the same time, achieving better performance is encouraged by some of the more attractive changes that are only available to ACOs in the higher-risk tracks.

Overall, the final rule retains many of the changes initially proposed, with a few noteworthy modifications. The name of the game appears to be flexibility, with the MSSP program developing an increasing palate of options for providers to choose based on their appetites for performance and risk:

Track 1 extended: ACOs may now choose to continue in Track 1 for a second term. Unlike in the initial rule, there is no penalty for doing so, and ACOs can maintain a 50% shared savings rate. For providers, this is good news, as it allows those not yet ready for other tracks to stay in Track 1.

Track 3 added: A higher-risk, higher-reward Track 3 was added, with up to 75% risk share for ACOs choosing this track. While we anticipate that the uptake will initially be low, this addition is a clear signal of the direction in which CMS is taking the Medicare program and shows a further willingness to share upside for providers able to take more significant risk in managing the population. Unlike the other tracks, ACOs in Track 3 benefit from some additional features, including the ability to apply for a waiver from the three-day Skilled Nursing Facility (SNF) rule and to have prospective assignment of beneficiaries to the ACO.

Additionally, a number of the most critical adjustments to the program that we highlighted have been maintained. In general, all of these will likely be heralded as “good news” by providers:

Improved assignment algorithm: There were a number of challenges ACOs faced in the current assignment algorithm, in particular around the use of services provided by non-physician practitioners such as registered nurses. The final rule addresses many of these core issues, which creates significant value for ACOs and ensures they are benefiting from the full range of ancillary providers they are partnering with to provide care for their attributed members. For more advanced ACOs looking to get creative, this opens up the possibility of obtaining attribution through retail clinics or other models if they’re included in the ACO.

Data sharing: The final rule also streamlines some of the data sharing processes between CMS and ACOs to enable providers to more easily access patient data, including eliminating member letters, which had previously created substantial administrative burdens.

Simple renewal process: The renewal process will be streamlined, easing the ability for ACOs to stay in the program.

Earlier this week, our colleagues at Mercer announced the launch of a suite of solutions to help employers navigate the growing market for value-based care. Oliver Wyman’s Tom Mikuckis explains why the new tools exemplify broader industry commitment to the shift to value—and also force a conversation among payers and providers over what kind of local collaborations will generate a win-win:

We have continued to see a great increase in value-based activity in the market. As of our latest survey, Accountable Care Organizations (ACOs) now serve between 15 and 17 percent of the United States. The latest round of approvals in January brings the total of Medicare ACOs to 426, up from 368 in January 2014 and 134 in 2013. Oliver Wyman has identified an additional 159 ACOs, bringing the estimated total to 585, an increase of 12 percent from the previous year.

However, though novel partnerships and contracts between payers and providers may be on the rise, the practical value being created through all of this activity is not so clearcut. This is partly due to the inherent challenges of transforming to manage total cost of care rather than maximizing volume. The tack requires many new capabilities, skillsets, and a fundamentally different operating model for most providers and payers.

Just as importantly, many have felt the need to play it safe, struggling to fully figure out how to “bridge the gap” between yesterday’s and tomorrow’s economics and have confidence that a rapid transformation would be accompanied by sustainable, profitable financials. As a result, much value-based activity has been incremental, with a slow transition to full two-sided risk and often bigger moves have been in exchange and Medicare Advantage markets, where market growth and financials created lower risks for initial testing-and-learning. Much of the market, in particular the large employer space, has remained in the realm of fee-for-service.

Mercer’s new tools were developed as a way to help employers assess what value-based care approaches are right for them, what opportunities exist in key local markets to support these approaches, and how to implement and communicate appropriately with the target employee populations. “We see value-based care as a potentially game-changing approach to achieve the much discussed ‘triple aim’ of reducing healthcare costs, increasing the quality of care, and improving the patient experience,” noted Molly Loftus, Mercer’s Chief Health Care Actuary. “We believe, however, that value-based care can only deliver on these goals if programs are not only carefully and properly structured and deployed, but also managed at the local-market level – the place where healthcare actually happens.”

Value-based care can only deliver on [its] goals if programs are not only carefully and properly structured and deployed, but also managed at the local-market level – the place where healthcare actually happens. – Molly Loftus, Mercer’s Chief Health Care Actuary

Oliver Wyman’s latest ACO Update report found that almost 70 percent of Americans now have access to accountable care organizations. The next step in the evolution of the model, says report author Niyum Gandhi, are program reforms that allow the best ACOs to invest in expanding. More on his take on accountable care trends below:

How do you interpret the latest ACO figures?The slowdown we’re seeing in the growth of ACOs was almost inevitable, given the pace of change of the past two years. I expect the next advance will be characterized more by increased sophistication than by increased numbers. A handful of the best ACOs are likely to find themselves with the data to prove that they really do deliver superior, lower-cost care—and will have the capital to invest in expansion. Traditional healthcare doesn’t provide very good value. It’ll be interesting to see what happens when patients have a compelling alternative.

Isn’t this taking longer than it was supposed to?Not really. People often fail to understand that payment reform only takes you so far. There are organizations out there that are trying to hit their cost reduction targets entirely by shifting sites of service or limiting expensive diagnostics. While that is important in the short run, in the long run, you need more. You need care models designed to meet the needs of specific patient populations—diabetics, frail elders, patients with multiple chronic diseases—and it takes time and money to build them.

Medicare has announced that it wants to change the rules for ACOs. How does that fit in?CMS has been learning along the way, much as ACOs themselves have been. Many people—including the most effective ACOs—believe CMS erred too much on the side of rewarding improvement rather than efficiency, while simultaneously structuring the program in a way that made knowing your improvement target difficult. The new rules make the program more sustainable and add some balance so strong ACOs can realize shared savings.

A handful of the best ACOs are likely to find themselves with the data to prove that they really do deliver superior, lower-cost care—and will have the capital to invest in expansion. – Oliver Wyman’s Niyum Gandhi

A recent post reviewed why some Accountable Care Organizations (ACOs) have failed to generate anticipated cost savings, while others are moving forward. Here, Oliver Wyman’s Tomas Mikuckis provides some specific examples of partnerships that demonstrate how to strategically navigate from a fee-for-service to a value-based market:

In recent weeks, a number of interesting success stories have been highlighted in various publications. Taken together, they show that delivering value can’t be achieved through a one-size-fits-all prescription. The examples highlight the importance of capitalizing on the often unique advantages of given local markets to create traction and momentum. Here’s a cross-country roundup of role models for success on value:

Massachusetts: Blue Cross Blue Shield of Massachusetts (BCBSMA) has expressed a commitment to driving cost and quality improvement through value-based arrangements. The Blue Cross Alternative Quality Contract (AQC) rewards doctors and hospitals for higher quality and better outcomes. In 2014, independent researchers examined the first four years of the AQC and found that it has lowered costs and improved patient care for HMO Blue members. A recent Avalere Health report concluded that “models like the AQC could serve as potential building blocks for collaborations that align incentives across providers and several payers” and “as backbones for pilots that engage the Medicare program and other government payers, with the potential to transform healthcare delivery and spending.” Part of BCBSMA’s advantage has been a very highly organized physician market with lots of employment and infrastructure in place, enabling providers to take risk and be successful. While BCBSMA’s announced intentions to expand the program beyond its HMO business to more open-access PPO networks isn’t yet a guaranteed slam-dunk, as some observers have noted, the effort to do so will benefit from a strong foundation laid with a high degree of provider buy-in and engagement.

Michigan: Blue Cross Blue Shield of Michigan faced a very different landscape, with a more fragmented and less developed physician landscape. BCBSM embarked on a multi-year investment to develop what is now among the nation’s largest Patient-Centered Medical Home programs. The program achieved certified savings of $155 million in prevented ER and hospital claims from the first three years of the PCMH designation program. Data from 2013-2014 shows adult patients in Blue-designated PCMH practices had a 27.5 percent lower rate of hospital stays for certain conditions than non-designated practices, and a 9.9 percent lower rate of ER visits over non-PCMH doctors. The investment in the PCMH model appears to be paying outsized dividends as well, evident in both the rapid introduction of hospital value-based contracts in that market over the past two years and a number of unique ACO-based product partnerships that have been launched in the state. More on the BCBSM PCMH and others can be found in the Patient-Centered Primary Care Collaborative’s annual review here.

The examples highlight the importance of capitalizing on the often unique advantages of given local markets to create traction and momentum. – Oliver Wyman’s Tomas Mikuckis

Earlier this week, the Centers for Medicare & Medicaid Services announced that it will be expanding its existing portfolio of Accountable Care Organization (ACO) programs to include the “Next Generation ACO Model,” designed for providers experienced in coordinating care for patient populations. Oliver Wyman’s Craig Samitt and Niyum Gandhi draw from their work designing value-based systems around the country to highlight key updates:

The Next Generation ACO Model initiative builds on experience from the Pioneer ACO Model and the Medicare Shared Savings Program (MSSP). The new model addresses a lot of the issues that arose with the implementation of the MSSP option, essentially carving out a new ACO category rather than significantly revising MSSP. While this is welcome news, especially for leading providers, we would ultimately like to see the enhancements apply across-the-board in all ACO programs, as we’ve discussed here. In the meantime, here’s what earns Next Generation its name:

Prospective setting of the benchmark. Thus far, participating in a CMS ACO model has been a little like playing in a baseball game where you don’t know the score you need to beat—much less your own score—until the game is over. This change will provide target performance savings numbers upfront. The model for setting the benchmark also includes adjustments for ACOs that have historically performed well and for regions that are historically less expensive—up to a 1.5% addition to the benchmark for those factors. While this tweak addresses concerns of low-cost ACOs, it’s actually offset by a 2-3% discount that varies based on the quality of the ACO. Even if a provider was previously considered highly efficient in a given region, with good quality, the organization will still need to beat its benchmark by at least 0.5%. This discount factor effectively replaces the minimum savings rate that frustrated many ACOs that were beating their benchmarks, but not by enough to qualify for savings.

Risk adjustment is no longer a one-way ratchet. It’s capped at a 3% increase per year to prevent gaming the system. But at least the new program acknowledges that the average risk score for members can go up year over year, and the policy is consistent with CMS’s intent to not reward for documentation improvement, only for actually taking on higher risk patients. As the model transitions to a region-based benchmark in future years, this will presumably align even more with Medicare Advantage (MA).

It makes sense that CMS is moving into this model as a small program for leading ACOs, but ultimately, we’d like to see all of these enhancements be standard in the ACO programs, regardless of the level of risk assumed. – Oliver Wyman’s Craig Samitt & Niyum Gandhi

Oliver Wyman Partner Patrick Barlow centers his strategy work on helping organizations drive success in their value-based health initiatives. Below he offers his perspective on why some ACOs have failed to generate anticipated cost savings while others are moving forward:

CMS recently announced a bold pledge to drive 50% of provider payments into value-based models, such as ACOs, by 2018. Likewise, a private sector consortium known as the Health Care Transformation Task Force, consisting of a number of large health plans and provider systems, further upped the ante by setting a target of moving 75% of their businesses into value-based arrangements by 2020. These highly visible commitments confirm that healthcare’s transformation to value is not only here to stay, but is accelerating. However, the distribution of this transformational effort remains uneven. While there are some notable progressive leaders driving real change in the market, my team’s observations of the value-based healthcare landscape over the past few years suggest that many entrenched players have favored style over substance, making only token efforts towards value. In a rush to keep pace with market buzz, many traditionally-minded payers and providers scrambled to stand up nominal ACOs and issue press releases signaling that they too were in the value-based game. Several years (and millions of investment dollars) later, many of those same organizations struggle to highlight any real transformation.

There are wonderful examples where the reality of value-based health has actually held true to its promise of sustained quality, real cost savings, effective trend management, and improved patient experience. – Oliver Wyman Partner Patrick Barlow

Oliver Wyman’s ACO expert Niyum Gandhi teamed with colleague Graegar Smith, who works at the intersection of healthcare and retail, to offer this view of an overlooked yet high-potential option for acquiring new patients and creating a virtual care organization:

Proposed changes by the Centers for Medicare & Medicaid Services (CMS) to the Medicare Shared Savings Program (which we’ve discussed in a series of posts) have the potential to patch up some of the most significant shortcomings of Medicare’s pilot programs for accountable care organizations (ACOs). The adjustments to the track structure were needed to prevent developing ACOs from dropping out too quickly. One of the potential changes to the benchmarking system should help eliminate an inadvertent bias against the strongest performers. And new rules for attribution – the process by which CMS determines which patients “belong” to which ACOs – ought to make it more fair and more realistic (assuming, of course, that the proposals become final rules).

Fixes are important, but in a shifting marketplace, opportunity is king. For an ACO looking for a way to transform itself, one very exciting (and overlooked) part of the proposed changes is in the attribution rules, which suggest some real steps forward in acquiring new patients and creating a virtual care organization.

Here’s the deal: Under the old rules, only visits to physicians counted for purposes of primary attribution. That created problems. For example, let’s say you were an ACO and you successfully managed a low-risk patient for a full year using only nurse practitioners and physician assistants. You’ve invested in the patient and achieved good results. Then in late December, the patient becomes suddenly ill while at work and visits a primary care physician close by that’s part of a different ACO. For the purposes of attribution – and CMS risk sharing payments – that patient belongs to the other ACO.

The proposed rules eliminate that problem, but they also appear to create an opportunity: If a visit to your NPs and PAs count for purposes of attribution, why not create contractual arrangements with other organizations that employ NPs and PAs – such as pharmacy- or grocery-based clinics – so that visits to those NPs and PAs can count for attribution? Why not build out a contract-based virtual ACO that provides convenience to patients, keeps care within a single coordinated organization, and allows the full range of care providers to share in the risks and rewards of better care?

For an ACO looking for a way to transform itself, one very exciting (and overlooked) part of the proposed changes is in the attribution rules, which suggest some real steps forward in acquiring new patients and creating a virtual care organization. – Oliver Wyman Partners Niyum Gandhi and Graegar Smith

Monday’s announcement by the Department of Health and Human Services (HHS) that it plans to move 30 percent of Medicare payments into alternative payment models by the end of 2016 and 50 percent by the end of 2018 has put providers on notice. HHS said these goals will be achieved through investment in alternative payment models such as Accountable Care Organizations (ACOs), advanced primary care medical home models, new models of bundling payments for episodes of care, and integrated care demonstrations for beneficiaries that are Medicare-Medicaid enrollees. Observes Oliver Wyman ACO advisor Niyum Gandhi:

HHS wants to push providers to a tipping point on value. This is a big deal because CMS is trying to push the market more aggressively to take on the affordability of the overall healthcare ecosystem through realigning providers’ incentives.

It’s hard to have a foot in the two canoes of commercialization and value capture. Providers need a calibrated strategy for sequencing various products and contracts. A multiyear plan will need to be developed for most organizations. Contracting opportunities create an opportunity to accelerate the development of clinical capabilities by rewarding the performance improvements that they deliver, and product partnerships can help lock in membership, market share, and loyalty. Staging and aligning this transition is critical, as a mismatch between performance capabilities and risk taking can create significant downside.

Shift the clinical model in sync with the payment model. As the market moves towards population health reimbursement, providers will need to reduce utilization to be successful. This requires investment in clinical transformation. To be successful, ACOs need to fundamentally change the way they deliver care. We have seen ACOs roll out many incremental tactics that address low-hanging fruit such as readmissions or moving care to more cost-effective settings. These plays – such as embedding care coordinators – are necessary but not sufficient for the transformation to full population health. The reality is that to achieve significant savings in total cost of care, providers need to effectively manage the overall health of patients, especially the highest-risk patients, in primary care and specialist offices. This is real investment, but also real disruption. Across the country, healthcare innovators are deploying next-generation clinical models that improve quality and outcomes while drastically reducing downstream utilization and cost. And they are maintaining financial stability throughout the transformation of the business by thoughtfully sequencing the value-based contracting and the investments in care redesign (see chart below).

Changing the reimbursement model necessitates a different model for engaging physicians.The old FFS/RVU model was designed to drive the behavior of productivity. In this new reimbursement climate, providers will have other behaviors that they want to drive, including spending time managing high-risk patients, following clinical protocols, working with a more effective multidisciplinary, holistic team, and innovating clinical models. The various levers available to drive these behaviors include physician group structure, communication strategies, data strategies and motivators, MD leadership development, and incentive alignment. The trick is to identify which levers work best for which behaviors, and then figure out how to time and sequence them.

This latest installment in our ACO Buzz series is contributed by Oliver Wyman Partner Niyum Gandhi, who has worked on more than 20 healthcare transformation projects. Among them, he helped a Blue Cross Blue Shield create its strategy for accountable care organizations and recently guided a large physician group in a renegotiation of its contracts to align financial incentives with patient interests before redesigning its care delivery models. In this post, he continues with his analysis of the recent changes proposed by the Centers for Medicare & Medicaid Services (CMS) to the Medicare Shared Savings Program (MSSP):

If you’re a value-based healthcare provider, you need to be able to tap into the Medicare system. For one thing, it’s a huge part of the market, accounting for 20 percent of U.S. healthcare spending and more than a quarter of the average hospital’s revenue. For another, it consists disproportionately of the right sort of patients for improving population health—high-risk, potentially high-cost seniors. If you’re playing that game, looking to make your money by reducing the risk-adjusted cost of care, you need them.

The problem? Until recently, a healthcare provider could move to value-based care contracts with patients covered by commercial insurance or Medicare Advantage but not with patients covered by traditional Medicare. As a result, some key elements of value-based care models weren’t available under traditional Medicare. CareMore, for example, famously gives seniors strength training and helps fall-proof their homes to reduce hip fractures. That’s great, smart care, but those services aren’t covered by fee-for-service Medicare. Some of them can’t even be provided free of charge, because under the law, many freebies are considered inducements to consume care and are strictly prohibited. Even waiving copays on treatment for chronic disease—an important element of many patient-centered care programs—is out.

That’s why Medicare Advantage has been such a boon for innovative population health managers. Because MA places a risk-bearing entity, typically an insurance company, between CMS and the practitioner, it has relieved CMS of much of the responsibility for policing the kind of care patients receive. It makes it possible for providers to use the most effective population management techniques on patient populations that benefit most. It gives them access to at least part of the Medicare market.

In our last ACO Buzz post, we reviewed the changes the Centers for Medicare & Medicaid Services (CMS) has just proposed to the Medicare Shared Savings Program (MSSP). They’re all important, but none more so than one set of proposals that the agency has published for review and comment. They cover perhaps the most difficult and contentious issue MSSP faces: how to set benchmarks. In principle, it’s easy to structure a payment program for an accountable care organization (ACO). If the ACO saves money, the ACO gets to share in those savings. If the ACO ends up costing more money, the ACO is responsible for part of the coverage. So far, so good. But what’s the benchmark—what’s the cost you use to determine how much the ACO saved or lost? That turns out to be complicated. The Affordable Care Act took a straightforward approach: If you participate in MSSP, you’re in competition with your own previous performance, not with other provider organizations; your benchmark is calculated based on the cost of care you delivered for the previous three years, trended forward based on national Medicare expenditures. That may sound reasonable, but it has created considerable dissatisfaction, especially among the most successful and innovative ACOs. As we’ve described elsewhere, the system sets the bar high—arguably too high—for providers that have historically controlled their cost of care, while providers with the highest current cost of care can receive shared savings with minimal improvements. Moreover, to continue receiving a shared savings bonus and, in some cases, avoid a penalty, providers have to continue to beat more and more stringent benchmarks every year. This may drive many providers out of the program—indeed, already some high-quality ACOs are trying to get more of their patients to enroll in Medicare Advantage, with a goal of eventually bailing out of MSSP, or potentially not serving Medicare fee-for-service beneficiaries in their primary care practices at all.

Welcome

Transforming Healthcare is the official blog of Oliver Wyman's Health & Life Sciences practice, offering ideas from OW's global team of experts as well as the latest in trend-bending market news from across the web.